Martinizing International, LLC v. BC Cleaners, LLC

Appeal
from United States District Court for the District of
Minnesota - Minneapolis

Before
LOKEN, MURPHY, and KELLY, Circuit Judges.

LOKEN,
Circuit Judge.

Martinizing
International, LLC commenced this action against BC Cleaners,
LLC and two of its member-managers, Brent Lundell and Timothy
Carver, asserting claims of Lanham Act trademark
infringement, see 15 U.S.C. § 1125(a), and
violation of the Minnesota Deceptive Trade Practices Act
(MDTPA), see Minn. Stat. § 325D.44. Defendants
failed to appear. The district court granted a default
judgment against BC Cleaners, concluding that it willfully
infringed Martinizing's trademarks and engaged in a
deceptive trade practice. Martinizing Int'l, LLC v.
BC Cleaners, LLC, 2015 WL 8483280 (D. Minn. Dec. 9,
2015). The court denied Martinizing a default judgment
against Lundell and Carver, concluding they were not
personally liable for trademark infringement or a deceptive
trade practice. Id. at *3. Martinizing appeals,
arguing the court erred when it denied a default judgment
against Lundell and Carver and reduced the award of
attorneys' fees for willful infringement. Defendants have
not appeared in this Court. We affirm the grant of a
permanent injunction enjoining BC Cleaners from using
Martinizing's trademarks. We conclude Martinizing failed
to prove willful infringement by BC Cleaners and therefore
reverse the award of damages, an accounting for profits, and
attorneys' fees. We affirm the denial of a default
judgment against defendants Lundell and Carver.

I.

Martinizing's
amended complaint alleged that, in June 2011, it entered into
two franchise agreements with Markus Kanning, dba KM
Cleaners, Inc., authorizing use of Martinizing's
trademarks in operating dry-cleaning stores in Eagan and
Inver Grove Heights, Minnesota. The agreements prohibited
Kanning as franchisee from selling the franchise locations or
assigning the franchise agreements without Martinizing's
prior written consent. Martinizing learned that KM Cleaners
and BC Cleaners entered into an Asset Purchase Agreement
dated August 22, 2014, without Martinizing's consent, and
that defendants continued to operate the franchised stores,
using and displaying Martinizing's trademarks without its
approval. On January 15, 2015, counsel for Martinizing sent a
letter to BC Cleaners and Lundell, demanding that they sign a
franchise agreement or refrain from using the trademarks, but
defendants continued to use Martinizing's marks and trade
dress. Martinizing attached to the complaint copies of a
document entitled "Asset Purchase Agreement of
Martinizing Dry Cleaners" between KM Cleaners, Inc. and
BC Cleaners, LLC, and the January 2015 "Cease and
Desist" letter. The complaint generally alleged that
Lundell and Carver were member-managers who "aided,
abetted, directed and controlled BC with respect to the
wrongful conduct."[1]

When a
default judgment is entered, facts alleged in the complaint
are taken as true, but "it remains for the [district]
court to consider whether the unchallenged facts constitute a
legitimate cause of action, since a party in default does not
admit mere conclusions of law." Marshall v.
Baggett, 616 F.3d 849, 852 (8th Cir. 2010) (quotation
omitted). Thus, after entry of default, Martinizing had to
prove it was entitled to the relief sought in its complaint
against each defendant -- treble damages under the Lanham
Act, an injunction enjoining use of its trademarks and unfair
competition, prejudgment interest, costs, and attorneys'
fees. Whether Martinizing met that burden is an issue of law
we review de novo. Marshall, 616 F.3d at
853.

In
support of its motion for entry of default, Martinizing
submitted two email responses from defendants, neither of
which was filed with the court. In a March 1, 2015 email,
Lundell stated: "We will comply with [Martinizing's
demands]. Signage will [be] handled by KM Cleaners and the
landlord who are operating the stores. The stores are no
longer under our control." In a June 23, 2015 email,
Lundell wrote:

As an additional follow-up, BC Cleaners, LLC was never a
franchisee of Martinizing . . . . BC Cleaners was operating
the units for KM Cleaners, LLC along with an agreement to
purchase the units from KM Cleaners [that] was never fully
executed.

In
support of its motion for default judgment, Martinizing
submitted with an attorney affidavit copies of its franchise
agreements with Kanning, the purported Asset Purchase
Agreement and "Closing Documents" between KM
Cleaners and BC Cleaners, the January 2015 Cease and Desist
letter, photos of the dry-cleaning stores showing use of the
Martinizing trademarks, and documents supporting its claim
for an award of $18, 592.92 in costs and attorneys' fees.
The attorney claimed personal knowledge of facts supporting
the claim for costs and attorneys' fees, but no firsthand
knowledge of facts relating to the underlying franchise
transactions.

II.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In our
review of this abbreviated record, we found the most notable
aspect to be that the allegations of trademark infringement
and deceptive trade practice by defendants in the amended
complaint are directly contradicted by the terms of
the Asset Purchase Agreement that ...

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